BILL ANALYSIS
AB 328
Page 1
Date of Hearing: May 5, 2009
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
AB 328 (Calderon) - As Amended: April 27, 2009
As Proposed to Be Amended
SUBJECT : ELECTRONIC TRANSACTIONS: EXCEPTIONS
KEY ISSUE : SHOULD EXISTING PROHIBITIONS ON THE ELECTRONIC
TRANSMISSION OF IMPORTANT INSURANCE NOTICES BE REPEALED SO THAT
INSURANCE COMPANIES ARE AUTHORIZED TO PROVIDE CONSUMERS WITH AN
ELECTRONIC FORM OF THE NOTICES RATHER THAN BY MAIL OR PERSONAL
DELIVERY?
FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.
SYNOPSIS
This bill, sponsored by the Association of California Insurance
Companies, seeks to authorize certain types of insurance
companies, including property and automobile insurers, to
electronically provide notices, disclosure statements and other
communications to consumers in specified instances, if agreed
upon by each party. The bill would accomplish this by repealing
existing prohibitions on sending certain insurance notices and
disclosures electronically under the Uniform Electronic
Transactions Act (UETA). At the same time, this bill would not
change existing law requiring the consumer to agree to have the
transaction conducted electronically and prohibiting the insurer
from compelling the consumer to conduct the transaction
electronically. Supporters contend that consumers have grown
increasingly comfortable conducting business on the Internet and
through e-mail, and that consumers are no less certain to
receive the notices and disclosures identified in this bill if
they are sent by electronically rather than by U.S. mail.
Opponents believe that electronic mail is still subject to too
many delivery problems to justify repealing existing
prohibitions under the UETA.
SUMMARY : Authorizes certain types of insurers, including
property and automobile insurers, in specified instances to
provide notices, disclosure statements and other communications
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to consumers by electronic means rather than by mail or personal
delivery, if agreed upon by each party. Specifically, this
bill :
1)Repeals the prohibition on sending certain insurance notices
under the existing Uniform Electronic Transactions Act. By
repealing this prohibition, certain kinds of insurers would be
authorized, subject to other laws, to send an electronic
message to consumers instead of mailing or personally
delivering a notice when:
a) Denying automobile insurance after the individual
applied to purchase a good driver discount policy, provided
that the consumer has applied electronically.
b) Specifying the reason for cancellation of insurance,
where the reason for cancellation does not accompany or is
not included in the actual notice of cancellation, provided
that the consumer applied electronically
c) Sending the notice of the offer of earthquake insurance
coverage.
d) Demonstrating proof that an offer of earthquake
insurance was made.
e) Sending the California Residential Property Insurance
Disclosure statement.
2)Allows any notice required to be given to any person by
certain kinds of insurers, as specified, to be provided by
electronic transmission if each party has agreed to this
means. Notably, companies that provide casualty, property,
and automobile insurance enjoy this authority, while companies
that provide life, title, disability, or workers' compensation
insurance do not.
3)Provides that, with respect to notices sent by certain types
of insurers, the affidavit of the person who initiated the
electronic transmission, stating the facts of that
transmission is prima facie evidence that the notice was
transmitted.
4)Authorizes insurers, in specified instances, to make an
electronics funds transfer payment to:
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a) auto repairers, when agreed to by the insured person and
the repairer;
b) licensed contractors who repair or conduct other
construction work on commercial, industrial, or residential
property, when agreed to by the insured person and the
contractor;
c) pay claims on any loss, when agreed to by the insured
person;
d) pay claims on life insurance and disability insurance
policies when agreed to by the insured person; and
e) settle claims in which an administrator (the person who
collects claims in connection with life or health insurance
coverage) has collected funds from an insurer.
EXISTING LAW :
1)Establishes the Uniform Electronic Transactions Act which
authorizes the transaction of business, commerce, contracts,
and governmental affairs by electronic means. (Title 2.5 of
Part 2 of Division 3 of the Civil Code, commencing with
Section 1633.1)
2)Specifies that certain transactions are not permitted to be
conducted by electronic means. (Civil Code Section 1633.3.)
Transactions that are not subject to being conducted
electronically include, but are not limited to:
a) The written statement from an automobile insurer to the
applicant denying insurance coverage when the individual
applied to purchase a good driver discount policy.
Specifically provides that when an applicant has made a
written application for a good driver discount policy and
the insurer refuses to issue such a policy, the refusing
insurer is required to furnish the applicant a written
statement within 10 days of the refusal explaining the
reasons relied upon for denying insurance coverage.
(Insurance Code Section 658.)
b) A statement specifying the reason for cancellation of
insurance, where the reason for cancellation does not
accompany or is not included in the actual notice of
cancellation.
Specifically provides that upon written request of the named
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insured, mailed or delivered to the insurer not less than
15 days prior to the effective date of cancellation, the
insurer must specify in writing the reason for such
cancellation and the reason mailed or delivered to the
named insured within five days after receipt of such
request. (Insurance Code Section 666.)
c) Notice of an offer of earthquake insurance coverage.
(Insurance Code Section 10083.)
d) Notice of reduced earthquake insurance coverage at the
time of renewal of a residential property insurance policy.
(Insurance Code Section 10086.)
e) Proof that an offer of earthquake insurance coverage was
made. (Insurance Code Section 10087.)
f) Provision of the California Residential Property
Insurance Disclosure statement upon first issue of a
residential property insurance policy. (Insurance Code
Sections 10101 & 10102.)
3)Permits, unless expressly provided otherwise, any notice
required to be given to any person by any provision of the
Insurance Code to be given by mailing notice, postage prepaid,
addressed to the person to be notified, at his residence or
principal place of business in this State. Further provides
that the affidavit of the person who mails the notice, stating
the facts of such mailing, is prima facie evidence that the
notice was thus mailed. (Insurance Code Section 38.)
4)Provides, in various situations where an insurer is required
to pay a sum of money to the insured or other appropriate
party pursuant to an insurance policy, that the insurer make
payment by check or draft, payable to the named insured or
other party to whom payment is due.
COMMENTS : This bill seeks to authorize certain types of
insurers, including property and automobile insurers, to
electronically provide notices, disclosure statements and other
communications to consumers in specified instances, if agreed
upon by each party. The bill would accomplish this by repealing
existing prohibitions on sending certain insurance notices and
disclosures electronically under the Uniform Electronic
Transactions Act. (Civil Code Section 1633.1 et seq.)
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The Legislature passed the Uniform Electronic Transactions Act
in 1999 to establish uniform standards for conducting business
electronically, and more than 40 states now have adopted similar
laws. To protect consumers, the Act provides that: 1) a
consumer must agree to have the transaction conducted
electronically, and 2) a consumer cannot be compelled by the
business to conduct the transaction electronically. Although
this bill allows certain kinds of insurers to send, for the
first time, electronic notices or other statements to consumers
for the specified transactions, it maintains the Act's dual
consumer protections for such transactions.
The bill's sponsor, Association of California Insurance
Companies, writes in support:
Since 1999, consumers have grown increasingly
comfortable conducting business on the Internet and
through e-mail. This bill will allow [specified]
transactions to be conducted electronically.
Typically such transactions are required to be sent by
mail with no assurance that the information is
actually received by the policy holder. If the
policyholder wishes to continue receiving such notices
by mail, he or she could continue to do so.
Recent Amendments to the Bill Attempt to Address Opponents'
Concerns. The author has demonstrated a strong commitment to
working with opponents to address their concerns, as evidenced
by recent amendments to the bill taken in the Insurance
Committee. The author has amended the bill to retain existing
prohibitions on electronic messages for many transactions
relating to notice of cancellation and notice of non-renewal of
insurance policies. These amendments, which are recently in
print, have substantially narrowed the scope of this
legislation, such that the current version of the bill
authorizes insurers to provide electronic notices and
disclosures for six specified transactions, rather than the
previous total of seventeen. However, these amendments have not
addressed all concerns about the current version of the bill.
Electronic Provision of the California Residential Property
Insurance Disclosure May Be Open to Question. The bill as
currently in print would authorize insurers for the first time
to provide the California Residential Property Insurance
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Disclosure statement by electronic means. Existing law requires
that the named insured be provided a copy of this document
before any policy of residential property insurance may be first
issued in California. This important disclosure document
describes the principal forms of insurance coverage in
California for residential dwellings and identifies the form of
dwelling coverage that the named insured has purchased or
selected. It also encourages the policyholder to review the
specific provisions of the policy and to contact the insurance
company, agent, or the Department of Insurance consumer
information telephone hotline with any questions about what the
policy covers.
This mandatory disclosure statement contains important consumer
information, which has ongoing utility for consumers as they
evaluate their insurance needs and choices. In addition, it is
a document that must be provided without regard to whether a
consumer has requested it. As a result, consumers are not
likely to be aware that it has not been received if - as the
opposition contends below is still too likely given the state of
technology - an electronic mail transmission is unsuccessful.
T he Committee may therefore wish to consider whether the risks
that consumers would unknowingly fail to receive these important
consumer documents if transmitted electronically should justify
maintaining current law that exempts them from Uniform
Electronic Transactions Act. One possible middle ground might
be an exception allowing insurers to provide the disclosure
notices electronically when policies are obtained or renewed in
a real-time online transaction.
As Proposed to Be Amended, A Consumer Who Requests Certain
Statements of Explanation by a Mailed Writing Would Receive the
Insurer's Response by a Mailed Writing. Under Sections 658 and
666 of the Insurance Code, an insurer is required to respond to
a written application or request by a consumer by providing the
consumer with a written statement specifying its reasons for
denying coverage or canceling a policy, as provided. In both
cases, the consumer has an important interest in learning the
reasons why his application was denied or, as the case may be,
his policy was cancelled.
As proposed to be amended, this bill would allow insurers to
provide statements of explanation for denial or cancellation
(pursuant to Sections 658 and 666) by email, but only when the
consumer had made the particular application or request for
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information by email. In this situation, the consumer's conduct
indicates an agreement to conduct the transaction by electronic
means, and it is appropriate that the insurer's response in the
same transaction may be made using electronic means.
However, where the consumer had made the particular application
or request for information by use of a mailed writing, the bill
as proposed to be amended would require the insurer to provide
the written statement of explanation by mail or delivery and not
by electronic means. In this situation, the consumer by his
conduct has not shown agreement to conduct the transaction by
electronic means, and it is less appropriate that the response
be sent electronically where there is less indication that the
consumer uses email or has a valid email address to receive the
statement of explanation.
In effect, the bill as proposed to be amended allows the
insurer, in these two situations, to provide the written
statement of explanation to the consumer using the same mode of
communication that the consumer used to make the particular
application or request. The amendments would not preclude an
insurer who received an application or request by electronic
means from mailing or delivering the written statement of
explanation in response. The proposed amendments are as
follows:
Section 658 of the Insurance Code is amended to
read:
[After the last sentence, insert the following:]
Notwithstanding Section 1633.3 of the Civil Code,
when the application has been made in the form of a
mailed or delivered writing, then the refusing
insurer shall likewise furnish the applicant with
the written statement explaining the reasons relied
upon for denying coverage by mail or delivery.
Section 666 of the Insurance Code is amended to
read:
[After the last sentence, insert the following:]
Notwithstanding Section 1633.3 of the Civil Code,
the reason for cancellation may not be provided
electronically unless the named insured likewise
made the request by electronic means.
As Proposed to be Amended, the Bill No Longer Allows an Insurer
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to Send A Notice Of Reduced Earthquake Insurance Coverage.
Under Insurance Code Section 10086, at the time of renewal of a
residential property insurance policy, an insurer may modify the
policy to reduce earthquake insurance coverage but is required
to provide the insured with a renewal notice in a stand-alone
disclosure document. This document must include specific
language notifying the insured that the insurer has renewed the
homeowner's policy with earthquake insurance coverage that is
reduced from the previous policy purchased. The homeowner has
an important interest in receiving a hard-copy notification of
the insurer's unilateral decision to reduce earthquake insurance
coverage at the time of renewal, as evidenced by existing law
that prohibits insurers from sending this disclosure document by
electronic means.
For these reasons, the author has proposed to amend the bill so
that it no longer seeks to authorize insurers to send this
disclosure statement using electronic means. As proposed to be
amended, the bill will retain the existing prohibition on
electronically sending the disclosure statement specified in
Insurance Code Section 10086. The proposed amendment is:
On page 3, line 12, after "786," insert the following:
"10086,"
Electronic Funds Transfer of Payments. This bill would allow
insurers, with the opt-in and consent of consumers, to settle
insurance claims by making electronic funds transfer (EFT)
payments. Typically an EFT payment would take the form of a
direct transfer to a consumer's banking account in lieu of
issuing and mailing a check payable to the consumer. This is
consistent with the bill's goal of facilitating "E-Commerce" and
presumably increases convenience for both parties, without
jeopardizing the insured's coverage status if there is a problem
relating to electronic communication.
ARGUMENTS IN OPPOSITION : Consumer Watchdog remains opposed to
the bill as currently in print because it believes that
electronic mail is still subject to too many delivery problems
to allow the code sections identified in the bill to be removed
from consumer protections conferred by the UETA. According to
Consumer Watchdog, these delivery problems include: (1) SPAM
blockers that filter out legitimate business messages; (2) the
actions of people who change their email addresses or service
providers but do not know who to notify at the insurance company
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of their new email address; (3) technological problems (i.e. a
computer server is down when the important email is sent); and
(4) the real threat of computer viruses or scams that makes
consumers reluctant to open emails from senders not immediately
recognizable.
Author's Proposed Technical Amendment : The author has proposed
to amend the bill in Committee to correct an erroneous
cross-reference in Section 2 of the bill. The proposed
amendment clarifies that the insurers to whom this bill applies
include automobile and property insurers, among others, and
employs a correct cross reference to Section 1851 of the
Insurance Code. The corrected Section 2 of the bill, beginning
at page 3, line 34, would instead read:
"SEC. 2. Section 38.5 is added to the Insurance
Code, to read:
38.5. Any written notice required to be given or mailed to any
person by an insurer relating to casualty insurance, as defined
in Section 1850.4, relating to any insurance on risks or on
operations in this state not exempted by Section 1851 from the
coverage of Chapter 9 (commencing with Section 1850.4) of Part 2
of Division 1, may be provided by electronic transmission
pursuant to Title 2.5 (commencing with Section 1633.1) of Part 2
of Division 3 of the Civil Code, if each party has agreed to
conduct the transaction by electronic means pursuant to Section
1633.5 of the Civil Code. The affidavit of the person who
initiated the electronic transmission, stating the facts of that
transmission, is prima facie evidence that the notice was
transmitted and shall be sufficient proof of notice. Any notice
provided by electronic transmission shall be treated as if
mailed or given for the purposes of any provision of the
Insurance Code."
REGISTERED SUPPORT / OPPOSITION :
Support
Association of California Insurance Companies (ACIC) (sponsor)
National Association of Mutual Insurance Companies (NAMIC)
Pacific Association of Domestic Insurance Companies (PADIC)
Opposition
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Consumer Watchdog
Analysis Prepared by : Anthony Lew / JUD. / (916) 319-2334